Changes in Pension Laws Go beyond Increases in Annual Premiums Paid

Changes in Pension Laws Go beyond Increases in Annual Premiums Paid

Article excerpt

pension laws and how to reduce the mountainous deficit of the
federal agency that insures pension payments, sweeping changes were
enacted last week that will significantly affect the payments
companies must contribute and the guidelines under which employers
must operate.

For most companies, the changes in the pension laws, which will
affect about 112,000 pension programs that cover 38 million workers,
will nearly double the annual amount companies pay to the Pension
Benefit Guarantee Corp., to at least $16 per employee, from the
current $8.50.

But the changes go far beyond increases in the annual premium.
Under the new provisions, companies whose pension plans are
underfunded will, beginning in 1989, be forced to pay higher
premiums based on a formula that could make annual payments jump
more than sixfold, to $50 per worker for the most severely
underfunded plans.

The changes were part of the deficit reduction bill signed by
President Reagan and they come after the most tumultuous year in the
history of the pension agency.

As a result of the new pension provisions, companies will now be
forced to pay much higher premiums to the pension agency. On the
other hand, officials of the agency contend, further increases in
premiums - they were $1 per employee in 1974 - will be unlikely for
several more years since the new rules require companies with
underfunded plans to make sharply increased payments.

Officials of the guarantee corporation say that the
variable-rate premium will bring to the agency an additional $400
million in each of the next two years.

``It makes further premium increases less likely for well-funded
plans in the future,'' said Royal S. Dellinger, assistant director of
the pension insurance agency.

In dollar figures, the changes in the rules will mean a near
doubling for the 83 percent having fully funded pension plans. For
the remaining 17 percent, there will be variable rates that increase
depending on the underfunding of the pension plan. They will pay an
additional $6 per employee for every $1,000 of unfunded benefits.
Four percent of the companies' plans will be forced to pay the
$50-per-employee maximum premium.

The maximum premium will be reduced for five years for companies
that made the maximum payment to their pension plans before the
enactment of the new rules.

Under the new provisions, companies will be required to make
quarterly payments to the guarantee corporation, rather than the
current practice of making annual payments. Also, there are higher
penalties for failure to meet the due dates.

Significantly, the new regulations state that the liability for
making payments now rests with the parent company rather than with a
subsidiary or operating unit of a company. …